Even many people who are fairly good at scripting can set up a store using some popular package such as Mal’s eCommerce and then are left stumped by the idea of making it work with a payment gateway to actually collect money and put it into their account.
The Foundations – How To Collect The Money
Ecommerce simply refers to the practice of shopping online. From the site owner’s perspective, it entails collecting funds from sales transactions on their website and depositing that money into the bank.
In order to collect funds, you need to have a merchant account and a payment gateway (discussed below). Basically, when a person enters their credit card number on a website, the card number and buyer information is sent to a payment gateway. This is done securely. The payment gateway will interface with a payment processor to check availability of funds as well as any other criteria set for accepting transactions. If the funds are available, the payment processor will then deduct the funds.
A Merchant Account is a special type of account specifically for online retailers.
They are designed to allow non-POS (point of sale) transactions using credit cards, or transactions where you don’t have the person’s credit card in hand. In other words, you don’t have a card swiper.
A merchant account is not the same as a bank account. It acts as a go-between between your payment gateway and your bank account, accepting funds from credit cards which are then deposited into your bank.
A merchant account is a relationship based on trust between you and the issuing bank.
The bank takes funds from the buyer’s account and deposits into your account. A payment processor takes care of checking for availability of funds and debiting from the credit card account.
The bank issuing the merchant account is trusting that you will fulfill your end of the transaction by providing the product or service that the buyer purchased.
A payment gateway serves as the front end to your merchant account, allowing you to manage funds, transactions, and the like.
It also serves as a connection between your website and your merchant account.
It takes data submitted via your secure order forms and presents it to your processing bank. The processing bank then approves or declines the transaction and sends its response back to the payment gateway.
The payment gateway then turns around and provides this data back to the merchant for appropriate handling of the transaction. A payment gateway, then, does not offer services such as merchant accounts or shopping carts, although some of the larger-known gateways do provide such options as value-added services.
Fraud prevention is a big one because, as stated above, too many fraudulent transactions will result in chargebacks which could end up putting you on the Match List and your merchant account closed.
Some of the common fraud detection mechanisms are Address Verification (AVS) which compares the customer’s address with that on file with the issuing bank, CVV which makes use of the 3-digit security code on the credit card (4-digit on American Express cards).
Most gateways will provide instructions on how to interface with their servers from your web store. Many gateway providers can get you set up with a merchant account at the same time as the gateway. So, in most cases, you do not need to sign up for them separately.
Payment gateways vs third-party processors
Third-party processors, like PayPal and Amazon Payments , may allow you to receive credit card payments online without a merchant account and payment gateway.
Many new e-commerce websites choose to start with a third-party processor. A third-party processor is generally cheaper in the short term, and easier to set up, than a merchant account and payment gateway combination. Other e-commerce websites choose to use a payment gateway and direct merchant account as they are likely to be more cost effective in the long term.
Mal’s Ecommerce is a system which allows you to do all the above with very little knowledge or experience and will have you selling products and services in no time at all. Our tutorials explain everything and speed up your learning experience.
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